I briefly touched on this as part of my third revision/extension to yesterday’s post that found that the federal government, under the “Grand Deal of 2011”, will be spending $18 billion more in discretionary funds in FY2011 than it did in FY2010 using the bottom-line outlays. I decided it needed its own post.
The CBO explained today that the reduction in non-emergency FY2011 budget authority will, assuming it gets adhered to in future budget years, eventually result in between $20 billion and $25 billion of reduced spending through FY2021 compared to leaving the budget authority at FY2010 levels. Of course, that assumes that Wimpy Congress actually remembers when it’s Tuesday that the budget authority was cut. It also is in current dollars, which means that once inflation is figured in, it’s likely that the $18 billion in new spending today won’t be fully-covered by the potential $25 billion in reduced spending over the succeeding 10 years.
It’s actually two situations. The future savings, that may or (more likely) may not come, is based on the Wimpy principle of saying, “I’ll gladly pay you Tuesday for a hamburger today.” The old “Popeye” cartoons never did resolve that, but you can bet your bottom grain of smokeless gunpowder that the Congressional equivalent, especially as long as either half of the bipartisan Party-In-Government has control of so much as one House of Congress, will simply declare Tuesday as not existing.
The present situation is sort of like the carpenter example that Jeff Dunetz outlined:
The difference in the numbers are the difference between outlay and spending authority. Look at it this way. Say you are a carpenter and have been given $100,000 to redo someones kitchen. After one week’s worth of work you have allocated $75,000 to specific items but you haven’t purchased anything as of yet. The home owner comes to you and says you can only spend $70,000. You have cut the budget (or spending authority) by $30,000 but cut outlays by only $5,000.
The problem is that the outlays are actually the cost overruns, which, because Congress is the opposite of progress, will be fully-funded. With that in mind, let’s restate the example:
Say you are a carpenter and have been given $100,000 to redo someone’s kitchen. You’ve been asked by the homeowner and his wife to keep the spending to a maximum of $75,000 (i.e. budget authority) because that’s what the two agreed it would cost, but he agreed to cover any and all cost overruns out of a “separate” account his wife knows nothing about (hence the $100,000 in outlays). After a week, you discover that it’s actually going to cost $105,000 and take an extra week. Because there’s a penalty in the contract negotiated by the wife, the requested maximum has been cut to $70,000, but because the the homeowner also signed a provision putting him on the hook for the entirety of the cost overruns, it’s still going to cost $105,000.
